Despite having plenty of world changing, revolutionary, ideas, clean/green tech startups aren’t threatening enough. This holds back venture capital investment in the space, which hampers acceleration of green/clean technologies.
“Exxon Mobil is not invested in biofuels, because it’s not scared,” said Jeff Andrews, a partner, at Atlas Ventures speaking in Boston at the NVCA annual meeting, “There are no threats in clean tech, so that hurts exits.”
It’s a simple, but important idea. Alternative energy constituted just 7% of the nation’s energy supply in 2007, according to the EIA. So, solar, wind, geothermal, companies pose no threat to the incumbents like Peabody (BTU), Duke (DUK), or American Electric Power (AEP).
These companies have no reason to acquire a hot solar startup, just like Exxon has no incentive to acquire a hot ethanol startup. They, rightfully, don’t feel like they could be disrupted any time soon.
There’s more to it than just feeling threatened though, says David Prend of Rockport Capital, it’s also a matter of culture and history. Many of the biggest acquisitions of venture backed companies are made by companies that were started with venture capital. “No one really got rich selling to IBM,” says Prend, “they do by selling to Cisco.”
Because Exxon, Duke, etc. are older companies that don’t remember what it’s like to be a startup, they’re less inclined to acquire startups. Think about all the acquisitions–good or bad–Google (GOOG) made in the past five years.
This makes the IPO market doubly important for clean tech. It provides an exit for venture capitalists to earn money, and it hopefully creates a new large company that will have the money to acquire promising/disruptive startups. Too bad the IPO market is dead.
So, clean techsters, your mission is clear: Become scarier.
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